I need to answer this question. Suppose the federal government cuts taxes and increase spending, raising the budget deficit to 12 percent of GDP. If nominal GDP is rising percent per year, are such budget dificits sustainable forever?

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Originally Posted by rcdruyle

I need to answer this question. Suppose the federal government cuts taxes and increase spending, raising the budget deficit to 12 percent of GDP. If nominal GDP is rising percent per year, are such budget dificits sustainable forever?

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It's my opinion that budget deficits are not sustainable forever. Deficits simply mean the Govt is borrowing money to fiancé spending. Excessive Govt spending restricts the money supply thus increasing the cost of credit to consumers and the tax burden on taxpaers.

What is the loss and profit of economical crises
On one country due to macroeconomics and microeconomics.

Long term budget deficits usually mean the onset of inflation in the economy. Budget Deficits are inflationary because they are stimulating demand in the economy. Eventually prices rise because the supply of money is too high.

The same can happen when the economy prospers and there are too few workers for the available jobs. Wages rise and prices follow